Thursday, February 25, 2010

Economics 25/02/2010: Exports under pressure

A quick note on Ireland's trade flows for December 2009 - published yesterday.

As I warned earlier, the stellar performing Chemicals (inc Pharma) sector is now starting to retreat. Exports of Chemicals are down 9.54% in November and, per CSO statement, went further down in December. Machinery and Transport Equipment is down 38.9% in November (year on year).

Charts below illustrate the problems and showing the trends:
Overall, exports are down and the trend is also down - there goes a hope of exports-led recovery (not that it makes any sense, to be honest, given the global trends for trade). Imports are again heading South - suggesting two things:
  • a renewed pressure on consumer demand side; and
  • continued weakness in imports of intermediate inputs by the MNCs (signaling potential further declines in exports as a result).
Trade balance is not improving despite imports fall-off. There is a clear flattening out of the upward trend, suggesting that we are now close to exhausting the stage when collapsing demand drove trade balance up. It is down to exports from here on to influence the trade balance and the signs are pretty poor.
Chart above shows that the adverse changes in exports are not coincident with changes in terms of trade which continue to improve since Summer 2009. However, as the next chart clearly indicates, we are now away from the historic relationship between exports and terms of trade:
This implies that decline in exports we are experiencing is driven by other factors. Might it be a longer term pressure on MNCs activities in Ireland? Global trade flows changes? Or both?

Either way, there is no sign of exports-led growth. Irish exporters have performed miraculous well in 2009, compared with the rest of this economy. But one cannot hinge all hopes, as the Government is doing, on exporting sectors. Even more importantly, one cannot take exports performance for granted (as our Government is doing as well) - we need coherent strategy to get exporting back onto its feet.
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